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EGB / Gilt: Risk-on and inflation expectations the drivers

BONDS

A combination of risk-on sentiment (on hopes of Omicron developments) and higher inflation expectations (with European gas prices still close to yesterdays highs - despite being lower intraday) have helped EGBs/gilts lower.

  • Gilts are the biggest movers, with the curve moving in a fairly parallel fashion as yields rise just under 5bp. SONIA futures have seen Whites move up to 3 ticks lower on the day (up to 9 tick 2-day move), Reds move 4.5-5.5 ticks lower on the day (11.5-15.0 tick 2-day move) and Greens/Reds 5.5-6.5 ticks lower on the day (16.5-19.5 tick 2-day move).
  • The Independent Office for Police Conduct will decide today whether to conduct an investigation into the Downing Street parties as soon as today (after the Cabinet Office has concluded its investigation). Boris Johnson has moved to new all-time lows in the polls as the fallout continues.
  • The German curve has bear steepened, with Euribor futures a little lower on the day (Greens/Blues down 8-10 ticks over 2 days now). 10-year yields are up 3.3bp while BTP-Bund 10-year spreads are 1.7bp wider on the day.
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